Petty Cash Book, Functions, Examples

Petty Cash Book is a financial record used to manage and track small, frequent expenses that do not require issuing a check, such as office supplies, minor repairs, or employee reimbursements. The petty cash book is typically maintained by a petty cashier and operates under the imprest system, where a fixed amount of cash is provided, and once spent, it is replenished. This system ensures that minor expenses are efficiently recorded and controlled without burdening the main cash book. The petty cash book simplifies the process of tracking low-value transactions.

Petty Cash Systems:

• Imprest System

 This is the most common method used for petty cash management. In the imprest system, a fixed amount of cash is allocated to the petty cash fund, and this amount remains constant. As expenses are incurred, they are recorded, and the total cash is periodically replenished back to the fixed amount.

• Float System

Petty cash is not replenished to a fixed amount. Instead, a balance is maintained, and when the balance runs low, funds are requested to be topped up. This system is less structured than the imprest system.

Functions of Petty Cash Book:

1. Records Small-Scale Expenses

The primary function of a petty cash book is to track minor expenses that occur frequently, such as stationery purchases, transportation costs, and small office supplies. These expenses are typically too small to be processed through the main cash book or bank transactions. The petty cash book ensures that such small outlays are accurately recorded and accounted for.

2. Reduces the Workload on the Main Cash Book

By segregating minor expenses from the main cash book, the petty cash book helps reduce the burden of recording trivial amounts in the primary ledger. This not only simplifies the overall accounting process but also ensures that the main cash book is reserved for larger, more significant transactions. The petty cash book provides an efficient way to handle low-value payments separately.

3. Facilitates Quick Payments

Petty cash book allows for immediate and quick payments without the need to issue a check or go through the formal approval process of larger transactions. This is particularly useful in situations where small amounts need to be disbursed promptly, such as paying for urgent office supplies or covering transportation fares for staff members.

4. Works Under the Imprest System

Most petty cash books operate under the imprest system, where a fixed amount is allocated to the petty cashier at the start of a period. As expenses are made, the amount decreases, and at the end of the period, the petty cash is replenished back to the original fixed amount. This system ensures control and accountability, making it easier to manage cash flow and avoid misuse of funds.

5. Provides Detailed Records of Minor Expenses

Petty cash book ensures that each small expense is thoroughly documented, including the date, the purpose of the expense, the amount spent, and any supporting documentation (like receipts). This detailed record-keeping helps in maintaining transparency and accountability for all small transactions.

6. Simplifies Audit and Internal Control

Petty cash book serves as an essential tool for audits and internal control. By maintaining accurate records of small transactions, it allows auditors to easily review and verify the expenditures. The imprest system, combined with proper documentation, ensures that funds are not misused and that every expense is justified.

Example of a Petty Cash Book (under the Imprest System)

Explanation of Columns:

• Date: The date when the transaction occurred.
• Particulars: A brief description of the expense or transaction.
• No.: Voucher number associated with the transaction.
• F.: Ledger folio reference number.
• Amount (Debit): The amount added to the petty cash (replenishment).
• Amount (Credit): The amount of money spent on various expenses.
• Balance: The remaining petty cash after each transaction.